09.22.2017
By Rob Daly

Fintech Innovation Remains a Startup’s Game

It is almost every fintech vendors nightmare that the “Big Five” internet companies- Google, Facebook, Amazon, Microsoft, and Apple- would one day leverage their respective technology footprints and move into the financial services space.

The consensus of a few major venture capital firms is that the fear is unfounded mostly.

“In many cases, when you do the analysis and look at your core business and the margins of financial services, it is not a compelling adjacency to enter,” said Matt Harris, a managing partner at Bain Capital Ventures who participated in the Montgomery Summit hosted at Nasdaq’s MarketSite in Manhattan.

Harris cited Google’s 2015 plan to launch its Google Compare for US Auto Insurance offering.

“It hired a full team, did a small acquisition and announced that it would help consumers find the right auto insurance for them,” he said. “And nine months later, it backed out of it entirely. Google realized that it was paid much more money from the insurance brokers and that it was not worth the squeeze to have the channel conflict of competing with them.”

However, when it comes to payments, Apple and Amazon break from the pack.

Harris viewed Apple’s Apple Pay business as more of a tool the iPhone maker uses to enrich the economy on its devices.

“Very few of us use it in a store, but many of us use it in an app,” he said. “Even if you do not use it, your 13-year old nephew who is buying digital swords on his gaming apps does since entering your credit card information to buy that digital sword would not daunt your nephew but it is a hassle.”

Amazon, on the other hand, is more of a wild card, according to Harris.

Given that the company is evolving from a retail-only business to an infrastructure provider to every company in the world, Harris said that a move by the company into payments would be “wildly strategic.”

Amazon would not need to onboard many clients since it already has more than 200 million American credit cards already on file, he noted.

“You could pay with Amazon at any merchant, but merchants have mixed feelings about Amazon, where ‘mixed’ is ‘hatred,’” said Harris. “There is a reason why you do not see a ‘pay with Amazon’ button on every website.”

Another reason for the Big Five not to jump into online payments is that the overall market is too small, according to fellow panelist Brendan Carroll, senior partner and co-founder Victory Park Capital.

“Depending on which data you use, the online lending market was $15 to $20 billion last year,” he said. “It is not big enough for the credit card companies or Amazon. As it continues to grow, maybe, but I think the regulatory environment will keep many companies away from it because they do not want to deal with the hassle until it becomes so big that they have to enter it.”

Where the panelist saw the greatest amount of effort to leapfrog current payment offerings are from, not surprisingly, startups.

“You see moves happening outside of the US,” said Alex Ferrara, a partner at Bessemer Venture Partners. “Some of the Asian players also are moving into payments and, potentially, more aggressively into banking.”

There has been much experimentation with some strategies show some signs of flowering, but it is early, according to Ferrara.

“We have not seen any company crack the code on it at this point, but expect in the next several years that these internet-based startups companies will take little pieces away from the financial services landscape,” he said.

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